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How to Save for Retirement at Your First Job

By U.S. News & World Report

Saving enough to retire comfortably is significantly easier if you begin to put away money for retirement at your first job. Tucking even a small amount into a 401(k) or IRA gives that money decades to accumulate without the drag of taxes, and compound interest will do much of the work of growing your wealth. Here’s how to begin preparing for retirement at your first job.

Get a 401(k) match. Your first retirement savings priority should be getting a 401(k) match, which is likely to be the best return you will ever get on an investment. If your employer provides 50 cents for each dollar you save, that’s a 50 percent return on your investment. And a dollar-for-dollar match instantly doubles your money. “Take advantage of any retirement matching funds that your employer provides in a 401(k) or similar retirement savings account,” says Alan Moore, a certified financial planner and founder of Serenity Financial Consulting in Bozeman, Montana. “If they’re willing to match up to 4 percent or 3 percent, make sure you are putting that amount aside.”

Set up automatic contributions. A 401(k) plan makes it effortless to save because the money is withheld from your paycheck before you ever get a chance to spend it. Contributing just $50 per twice monthly paycheck will leave you with over $1,200 within a year. If you kept up that savings rate for 30 years and earned 6 percent annual returns, you would have nearly $100,000. And if you also receive an employer match of 50 cents for each dollar you save, it would grow to nearly $150,000 in 30 years. “Trying to save at least 10 percent of your income for retirement is a good rule of thumb,” says Tyler Landes, a certified financial planner for Tandem Financial Guidance in Kansas City, Missouri. If you can’t save that much, “save at least 3 to 5 percent of your income just to get started,” Landes says.

Get a tax break. The money deposited in your traditional 401(k) plan is tax-deferred, meaning you won’t have to pay income tax on your contributions or the investment earnings until you withdraw the money from your account. If you are in the 25 percent tax bracket, a $100 401(k) contribution reduces your tax bill by $25. And if you earn less than $30,500 in 2015 ($61,000 for couples), you can additionally claim the saver’s credit on your retirement account contributions. This tax credit is worth between 10 and 50 percent of the amount contributed to a 401(k) or IRA, including Roths, up to $2,000 for individuals and $4,000 for couples.

Consider an IRA. If your employer doesn’t offer a 401(k) plan, or that 401(k) plan offers no employer contributions and has high fees, consider saving for retirement in an individual retirement account. IRAs also allow anyone with earned income to defer paying income tax on money they deposit in the account.

Minimize taxes with a Roth IRA. Roth IRA contributions are made with after-tax dollars and withdrawals in retirement are typically tax-free. Roth accounts are often especially beneficial for young people with small salaries because they help you to lower your lifetime tax bill. For example, if you are in the 15 percent tax bracket in the year you make a Roth IRA contribution, you lock in that relatively low tax rate. Even if you jump into the 25 or 35 percent tax bracket later in your career or in retirement, you won’t have to pay that higher rate on your investment earnings or Roth account distributions if you wait until retirement to take them. Some employers also provide a Roth 401(k) option that offers a similar tax deal. “If you don’t have a company match at work, you might want to head straight for the Roth IRA,” says Sophia Bera, a certified financial planner and founder of Gen Y Planning in Minneapolis. “Look into starting a Roth IRA at a discount brokerage firm, and set up automatic monthly contributions.”

Choose low-cost funds. The expense ratio and other fees you pay to invest reduce the returns you could be earning. Make sure you understand the costs of each investment option you select. “I generally hope to find something less than half a percent, and ideally you can get 0.1 percent or 0.15 percent,” Moore says. “The cheapest investments tend to be index funds and other low cost funds that are not actively managed.”

Create an emergency fund. Retirement accounts typically have 10 percent early withdrawal penalties if you take the money out before age 59 ½. To avoid tapping your nest egg to cope with emergencies, it’s essential to have some savings outside of your retirement accounts. An emergency fund can help you cope with sudden costs, while allowing your nest egg to continue to grow. “Even $500 to $1,000 would allow you to not use credit when an emergency comes,” Landes says. “Longer term, building that up to 3 months of income is a better move.”

More from U.S. News

10 Ways to Make Your 401(k) Balance Grow Faster

10 Retirement Savings Tips for 20-Somethings

10 Ways to Get Help Saving for Retirement

How to Save for Retirement at Your First Job originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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